Category Archives: Termination of Transfer

A Fool for Who? Can the Ray Charles Foundation Challenge Terminations?

The 9th Circuit recently reversed and remanded a Central District of California’s dismissal of a case involving an attempt by the Ray Charles Foundation to invalidate terminations of copyright transfer effected by 7 of Charles’ 12 heirs. The 9th Circuit found that the Foundation had standing to sue the 7 heirs and challenge the validity of their terminations.

Terminating transfers of copyright rights is one of the most arcane areas of copyright law. When Congress amended the Copyright Act in 1976, it eliminated the 2-term structure of copyright, whereby an author received an initial term of copyright and the could file a renewal notice to further extend the term. In its place, Congress created a single term of copyright, but provided [nearly all] authors or their heirs the inalienable right to terminate any transfer of copyright ownership at some specified future date. The public policy rationale for both constructs is the belief that authors need to be protected “against unremunerative transfers … because of the unequal bargaining position of authors, resulting in part from the impossibility of determining a work’s value until it has been exploited.” H.R. Rep. No. 94-1476, at 124 (1976).

As relevant here, the 1976 Act contains two separate provisions that govern how and when an author may terminate a transfer. Sec. 203(a) covers grants made on or after Jan. 1, 1978 (the effective date of the 1976 Act), which Sec. 304(c) covers grants made before Jan. 1, 1978. While both sections specify who may file a termination of transfer (the author or her heirs), neither section specifies who may challenge a termination. In this case, the 9th Circuit had to determine whether the Foundation had standing to challenge the terminations filed by the 7 heirs.

Noting that the Act does not specifically provide for a private right of action to challenge a termination, the Court of Appeals concluded that the Copyright Act created an implied private right of action to challenge terminations. Next, the 9th Circuit looked at “whether Congress intended to allow a party receiving royalties under a contractual assignment or will to challenge the validity of termination notices.” To answer that question, the 9th Circuit considered whether the Foundation fit within the “zone of interest” of this implied right. In concluding that it did, the Court noted that the Foundation had a material interest in the dispute (e.g., the future payment of royalties), had the proper incentive to forcefully litigate the dispute (more on that below), and resolution of the dispute in its favor would satisfy its grievance with the 7 heirs.

One may wonder why the owner of the copyright (in this case, Warner Chappell, one of the 3 major music publishers and sister company to Warner Music Group) wasn’t the one bringing this litigation. After all, if the terminations are valid, then Warner Chappell runs the risk of losing its share in those future royalties as well. The 9th Circuit reasoned that Warner Chappell’s interest was actually less direct than the Foundation’s. It is common practice for music publishers to renegotiate with songwriters after receiving a termination notice, so the 9th Circuit concluded that Warner Chappell (a) didn’t want to litigate and make the 7 heirs angry because (b) its most likely worst outcome was receiving less royalties in the future, not receiving no royalties in the future.

The Circuit’s decision is here:

Ray Charles Foundation 9th Cir. Appeal

Santa Claus Is Comin’ To EMI

In 1934, John Frederick Coots and Haven Gillespie wrote the song “Santa Claus Is Comin’ to Town.”  They conveyed the copyright to Leo Feist, Inc., a prominent music publisher at the time.  The copyright in the song was covered by the 1909 Act, which provided for a 28 year initial term followed by a second 28 year renewal term.  In 1951, Coots and Gillespie entered into a new agreement granting Feist the renewal term, such that when the original term ended in 1962, Feist remained the copyright owner for the renewal term (until 1990).  Coots’ heirs claim the song still generates $1mm per year in royalties, in which they share 25% (half of the half of the writers’ share).

The 1909 Act has been extensively amended over the years, beginning in 1976.  Two significant changes involve (1) the duration of copyright and (2) the rights of authors to terminate transfers.

With respect to copyright duration, the 1976 Act provided for a term of 75 years for all works created before January 1, 1978, which would include Santa Claus Is Comin’ to Town.  In 1998, the Sonny Bono Act the term was extended another 20 years, meaning Santa Claus Is Comin’ to Town enjoys a 95 year term–from 1934 to 2029.

The 1976 Act completely changed the way in which authors could regain control of their works.  Rather than 2 separate terms, the 1976 Act has a single term, but a right to terminate any transfer after a certain period of time.  For works created before January 1, 1978, Sec. 304(c)(3) of the Act provides for termination of any transfer of copyright ownership “can be effected at any time during the period of five years beginning at the end of the fifty-six years from the date the copyright was originally secured, or beginning January 1, 1978, whichever is later.” In this case, 56 years after 1934 is 1990.  Because the Bono Act extended the term of copyright by another 20 years, there is a second termination provision in Sec. 304, which allows for termination to be effected “during a period of 5 years beginning at the end of 75 years from the date the copyright was originally secured.”  But only where the author had not previously exercised a termination right.

Importantly, Sec. 304(c) has a recordation formality: a copy of any notice of termination must be recorded with the Copyright Office “before the effective date of termination, as a condition to its taking effect.”

On September 24, 1981, pursuant to Section 304(c), Coots sent Feist a notice to terminate the 1951 Agreement, selecting October 23, 1990 as the effective date of termination.  On November 25, 1981, Coots’ attorney, M. William Krasilovsky sent the 1981 Notice to the Copyright Office for recordation.  For you collectors of copyright trading cards, William Krasilovsky is the author of This Business of Music (now in its 10th edition), one of the most respected books on the music industry.  However, on May 7, 1982, the Copyright Office sent Krasilovsky a letter, stating, “[p]ursuant to our telephone conversation of March 1, 1982, we are returning [the 1981 Notice] to you unrecorded.” Only Krasilovskywas copied on the letter. The 1981 Notice was never later recorded with the Copyright Office.

On April 6, 2004, Gloria Coots Baldwin, Patricia Bergdahl, and Christine Palmitessa (Coots’ heirs) sent EMI, which had purchased Feist, a termination notice (the “2004 Notice”), pursuant to Section 304(d) seeking to terminate Coots’ transfer effective in 2009 (1934 plus 75 years),  EMI filed a motion for summary judgment on the grounds that (a) the 1981 termination was ineffective because the notice was never recorded in the Copyright Office and (b) the 2004 notice was ineffective because it was a second attempt to terminate a transfer, which Sec. 304(d) does not allow.  Judge Scheindlin of the Southern District of New York agreed with EMI and granted its motion.  Her decision is here.

 

Minnesota Judge Finds $1.5mm Jury Award Unconstitutional in File-Sharing Case

For the third time, Chief Judge Davis of the District of Minnesota federal court has reduced a jury’s award of statutory damages against Jammie Thomas-Rasset.  In October, 2007 the first jury awarded plaintiff record label Capital Records $222,000 based on Thomas-Rasset’s illegal sharing of 24 songs ($9,250 / song).  Judge Davis awarded a new trial because he believed he had given improper jury instructions.

In June, 2009, a second jury awarded $1,920,000 for illegally sharing the same 24 songs ($80,000 / song).  Judge Davis remitted the jury’s award down to $2,250 / song (or $54,000), but Capital Records rejected the remittitur and a third trial was held on the issue of damages.

Finally, in November, 2010, a third jury awarded $1,500,000 ($62,500 / song).  This time, realizing remittitur was not a viable option to ending the litigation, Judge Davis has held that the jury’s award violates Thomas-Rasset’s constitutional due process rights.  Specifically, Judge Davis held that “an award of $1.5 million for stealing and distributing 24 songs for personal use is appalling. Such an award is so severe and oppressive as to be wholly disproportioned to the offense and obviously unreasonable. In this particular case, involving a first-time willful, consumer infringer of limited means who committed illegal song file-sharing for her own personal use, an award of $2,250 per song, for a total award of $54,000, is the maximum award consistent with due process.”

Judge Davis wisely avoids the faulty logic of Judge Gertner’s similar due process analysis in Sony BMG Music Entertainment v. Tenenbaum, 721 F. Supp.2d 85 (D. Mass. 2010).  In reducing the jury’s award of $675,000 ($22,500 for each of the 30 songs at issue) to $2,250, Judge Gertner based her award on Judge Davis’ remitted award in Thomas-Rasset v.2.  She analyzed the constitutionality of the jury’s verdict under the Supreme Court’s BMW of N. Am., Inc. v. Gore, 517 U.S. 559 (1996) (“Gore”) standard, which provides a three factor test to determine whether an award of punitive damages is constitutional.  The myriad flaws in her decision are for another post.

Judge Davis wisely adopts the Supreme Court’s standard in St. Louis, I.M. & S. Ry. Co. v. Williams, 251 U.S. 63, 67 (1919) (“Williams”), in which the Court established a three factor test to determine the constitutionality of statutory damages.  What is fascinating about Judge Davis’ opinion is that it appears that the jury’s verdict satisfies each of the Williams factors, and yet he still finds the award unconstitutional.

For example, the first factor is the public interest.  Here, Judge Davis concludes “There is a significant public interest in vindicating copyright.”  The second factor is the opportunities to commit the offense.  Here again, Judge Davis concludes “It is clear that there are ‘numberless opportunities for committing the offense’ of illegally downloading and distributing sound recordings online.”  Judge Davis continues, “The third Williams factor [is] ‘the need for securing uniform adherence to established passenger rates.’ The need for deterrence also exists in this case.”  So, all three Williams factors point towards plaintiff Capital Records.

Judge Davis, however, begins the final section of his opinion by stating:

“To protect the public’s interest in enforceable copyrights, to attempt to compensate Plaintiffs, and to deter future copyright infringement, Thomas-Rasset must pay a statutory damages award. Plaintiffs have pointed out that Thomas-Rasset acted willfully, failed to take responsibility, and contributed to the great harm to the recording industry inflicted by online piracy in general. These facts can sustain the jury’s conclusion that a substantial penalty is warranted. However, they cannot justify a $1.5 million verdict in this case.”

In other words, Judge Davis’ entire constitutional due process analysis appears to boil down to, “I personally think this is too high an award.”  There is no further legal support to his position.  In fact, later in the opinion he states “The Court accords deference to the jury’s verdict. Yet an award of $1.5 million for stealing and distributing 24 songs for personal use is appalling. Such an award against an individual consumer, of limited means, acting with no attempt to profit, is so severe and oppressive as to be wholly disproportioned to the offense and obviously unreasonable.”

But the jury’s verdict is quite clearly not obviously unreasonable.  As noted above, the three juries in this case awarded damages of $9,250, $80,000, and $62,500 per song.  The jury in Tenenbaum awarded $22,500 per song.  While that range is pretty wide, the juries have awarded between 4 and 35 times as much as both Judge Davis and Judge Gertner find “obviously unreasonable.”

Congress created the statutory damages scheme of the Copyright Act to allow juries to determine awards within a range, which all three juries did in the Thomas-Rasset case.  I’m confident that the 8th Circuit will reverse the inevitable appeal.

Judge Davis’ opinion is below:
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Statutory Damages Go to the Dogs (and Cats) Part Deux: Albums as Compilations and Statutory Damages

In what can only be the universe trying to get me to write more about statutory damages, today I read Judge Wood’s most recent decision in the Limewire case and discovered an interesting article by Wyatt Glynn entitled “Musical Albums as “Compositions”: A Limitation on Damages or a Trojan Horse Set to Ambush Termination Rights?”  The former decision deals with the record labels’ motion seeking entitlement to statutory damages for each individual sound recording infringed by users of Limewire’s file sharing protocol, even if those sound recordings appeared as part of a compilation.  The latter article considers the recent case of Bryant v. Media Rights Prods., Inc., 603 F.3d 135, 141 (2d Cir. 2010) and the potential impact of that decision, which found that the plaintiffs were only entitled to one award of statutory damages because the sound recordings had been issued as albums and were, therefore, “compilations” under the Copyright Act, on terminations of transfer.

In finding that the record labels were entitled to individual awards of statutory damages for each sound recording infringed, Judge Wood distinguished her Limewire case from Bryant by noting that the plaintiffs in Bryant had only issued their recordings as a compilation; i.e., the individual sound recordings had never been issued by the plaintiffs as “singles” but only as a CD.  Only later, when those digital albums were made available on iTunes, were the individual sound recordings available as “singles.”

The calculation of damages in the Limewire case is going to require a MIT math wiz to calculate.  Here is how Judge Wood described the statutory damages available to the record label plaintiffs:

For albums that contain sound recordings that are available only as part of the album, and
sound recordings that are also available as individual tracks, the Court provides the following example for purposes of illustration. Let us assume that Plaintiffs issued (1) an album containing songs A, B, C, and D, and that Plaintiffs also made available (2) songs A and B as individual tracks, but (3) made available songs C and D only as part of the album as a whole. Let us also assume that songs A, B, C, and D were infringed on the LimeWire system during that time period. Plaintiffs would be able to recover three statutory damage awards: one award for song A, one award for song B, and one award for the compilation (of which C and D are a part).

The concern of the author of the article is whether the Second Circuit’s holding in Bryant that albums are “compilations” under § 101 of the the Copyright Act might impact recording artists ability to terminate their copyright transfers under § 203 of the Copyright Act.  For the uninitiated, § 203 provides that an author who has transferred the rights to her copyrighted work may, after 35 years, terminate the assignment of the copyright notwithstanding any agreement to the contrary.  This being the Copyright Act, there is, of course, an exception; there is no right to terminate a transfer for a “work made for hire.”  As the author discusses, whether the “album” as currently constituted today fits the statutory definition of a “compilation” is hotly contested; e.g., if a song is issued first as a single and then as a part of a digital album, is that a “compilation”?  If they are compilations, then record companies can rest easy in the knowledge that they will own the copyrights in those sound recordings until they expire.  If they are not compilations, then record companies face a mass exodus of famous (and very profitable) back catalog in the coming years.

An interesting application of this issue can be found in Arista Records LLC v. Launch Media, Inc. where the Second Circuit held in a case of first impression that the Launchcast personalized Internet radio service was not an “interactive” service under the Copyright Act.  Because the Second Circuit determined that Launch as non-interactive–and, therefore, not infringing–the Court never considered whether the record label plaintiffs were entitled to damages based on individual sound recordings or only on a per-compilation basis.  The Launch brief to the Second Circuit, however, contains a nice encapsulation of how this issue plays itself out in interesting ways. According to their brief (around page 51):

During the trial, plaintiffs stipulated as follows: (1) every copyright at issue
was a single registration for “an album consisting of multiple tracks”; (2) for all
but 11 of the 835 copyrights at issue, the copyright registration was denominated
as a “work made for hire”; (3) for every copyright at issue “the recording artist
whose recordings are the subject of the Certificates were not employees of the
copyright claimants.” … These facts, taken together, lead to the
inescapable conclusion that the registrations at issue were, in fact, for
compilations.

Judge Wood’s Limewire decision is here:
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Wyatt Glynn’s article is available by clicking here.

Launch Media’s Second Circuit brief is here:
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